Populists
End to the
Gilded Age
but
Business Power Would Return
After WW I.. The 1896
realigning election resulted in a republican forged conservative coalition
consisting of businessmen, professionals, skilled factory workers, and
prosperous farmers. There would be
opposition which created two unsettled decades called the Progressive Era. It was a period of social activism and political reform that flourished from the 1890s to the
early 1920s. See
Progressive Era15 min. video One main goal of
the
Progressive movement was eliminating corruption in government by
exposing
political machines and their bosses in hopes of creating a more direct democracy.
This put election reform high on the agenda. Progressives also
sought regulation of monopolistic
trust corporations through
antitrust laws which were seen as a means to promote fair
competition for the benefit of consumers. An increase post WW I Communist and Union activities
caused a fear of anarchy not seen since the French Revolution. It led to
public desire for a return to more peaceful
Republican led government. It would not be the last Red Scare.

Hoover had trouble helping during the Great Depression.
Tension increased when the U.S. Senate refused to agree with the House
which had and move
up the payment of a WWI veteran bonus. There was much distress from high unemployment. A
1932
Army of U.S, Veterans
march on Washington for their bonuses. Trouble resulted. Over the years many have marched,
some have died. FDR would bring change.

Liberals around the world
said socialism was the economic answer to depression. The
Share the Wealth movement was founded by Louisiana Governor
Huey Long
was one of many liberal social activists
seeking political power throughout the U.S. and Western Europe. He would
later be assassinated.

These activities would be countered
by conservative banker and business leader oligarchs who backed Herbert
Hoover’s use of laissez fair
Classical economic policy.

Hoover's first policy mistake was to follow the Republican party against
his own beliefs of those of many
economists. Signed the
Smoot-Hawley
Tariff Act caused many countries soon followed and the resulting decrease in
world trade hurt everyone.

The Federal Reserve tried to
maintain the Gold Standard with two discount rates increase of 1 point each.

Then there was the
Revenue Act of 1932 which dramatically increased federal taxes. Both
were right out of the Classical Economics toolbox. So was the $200,000,000
U.S. bank loans to keep Britan on the Gold Standard. All efforts failed.

Britan
went off the Gold Standard first followed the U.S. in 1933. The economy
hit bottom in 1933 and spending printed money was the only way out of deflation which made
existing loans more expensive in real terms and also made business less apt to
borrow.

Hover lost the
1932 election. as FDR promised to use liberal Keynesian economic
government action to solve the continuing economic recession.

Members of the Bonus Army camped out on the lawn of the
Capitol
building in mid 1932. Click for larger photo.

Shacks that members of the
Bonus Army erected on the Anacostia Flats burned
after
the Vets confrontation
the military.

Conservative fought
back using a conservative Supreme Court which declared some New Deal
legislation illegal. The battle over
Keynesian vs. Classical Economics continues today. Many
conservatives do not mind government action and debt for military problems but
disagree with Liberals who want to use debt to solve economic problems. Both
oligarchies to date have not believed that cost effectiveness applies to
their perceived
governmental responsibilities.

Politicians from both political parties act unhappy despite
benefiting from an electorate that lives much better because of massive federal annual
deficits. Also helping voters is the economic benefits of an annual balance of payments deficit
amounting to $1,700 per person. The later represents cheap goods from abroad.
Dollars accumulate and eventually return to the U.S. in the form of
public and private US financial instruments, US travel and fixed
assets.

Voters let politicians buy their vote with these debts disliking all members
of Congress but their own! After Germany invaded
Poland starting World War II President Roosevelt asks
the Congress for a defense budget hike and the United States declares
its neutrality. Many wanted the U.S. to stay out of the war and just as many
profited as U.S. loans to Europe,, Loans were spent with US companies
that supplied war arms and food to belligerents.

High Oil prices pushed Japan into more valued added exports like
automobiles, machinery and computers. This competition caused a
stagnate Rust Belt with lower wages and eventually lower employment.
Japan's manufacturers got lucky from increased demand for gas
efficient small green cars with catalytic converters. Detroit
protected profit by seeking tariff protection. Investment
needed to lower cost and increase product quality was ignored.
Auto union leaders protected their positions. Current worker
protected existing jobs and salaries by accepting a two-tier wage system. It minimized the need for new
workers who would receive lower wages for a similar jobs. Feeling
political pressure Japan built many modern U.S. plants often in the
nonunion southern states offering the highest tax incentives. Use
PDF for Color Printing.
provided by
textbooksfree.org

#3
1980's Failing Manufacturing and Less Financial RegulationEvents Causing Financial
Instability Causes Great Recession
1980's U.S. and England Returned to Conservative Lax Business
Regulation
because increased regulation and increased welfare provisions had
upset many voters.
Think Great Society and lax derivative regulation
which result in major increases hostile leveraged buyouts
plusand over-investing in Real estate caused. They caused
the
Savings and Loan Crisis. ThinkMichael Milken
Scandal,
Keating Fiveresults from poor Alan Greenspan advise.
1980's Major Investments Banks Went Publiccreating a need to balance client needs with equity needs.
Think expansion of financial industry's
share of GDP. 1980's Accounting Standards Declined
as accountancy firms struggled to balance commitments to audit
standards with the desire to grow their consultancy business.
Think
off-balance-sheet items andArthur Anderson Scandal.1980'sHome Equity Loans
Increased Current Consumption and Lowered Savings as they
replaced equity building home improvement loans.
Think many not prepared for retirement.1983 Reverse
Mortgages Approved for FHA loans.
Think less retirement savings.1986
Big Bangderegulates London's financial services
industry, other will follow.1999 Gramm–Leach–Bliley Act Increased Systemic Financial Risk
once limited by the Glass-Steagall Great Depression Act. Initiated
by Republicans it was signed by President Clinton.
Think financial industry expansion. See
Five Bad Bush/Clinton Policies2004 Uptick Short Rule of 1938 rescinded. Think
stock market gambling.2006 FASB requirement that housing assets be mark-to-market decreased
financial system collateral.
Action resulted from a 1991 Government Accountability Office investigation of the $160,000,000,000
savings
and loan bailout.Think moral hazard.

From Financial Crisis to
Recession to Great Recession to Recovery1.
Great Moderationpreceded the Great Recession
2.2007-8 Financial Crisis was
tamed by the Federal Reserve.
3.
2008-9 Recession
was tamed by both monetary and fiscal policy. 4.
European financial instability and world-wide austerity slowed economic
recovery and income growth for all but the very, very, very wealthy.
Think top 1/10th of one-percent.
5.
Great Recession Recovery Has Varied Around the World

Understanding Balance Sheet Recessions
They are
infrequent, severe, and long-lasting. Understanding them is necessary when
judging society's efforts to manage The Great Recession. It is like understanding a doctor's attempt
to relieve a headache requires knowing the level of difficulty. Was it a
Migraine Headache? A balance sheet iscaused by high levels of private sector
debt. Assets must equal liabilities plus
equity. If assets values like housing collateral fall below their
associated debt, equity must make up the difference or insolvency results
and debt must be repaid. Think 1837, 1873, 1890 & 1929 See
Most Severe US Recessions.Was Our Great Recession a Balance
Sheet Recession?Economist
Paul Krugman feels the
financial crisis ..."was one manifestation of a
broader problem... associated with a "balance sheet recession."
Economist Richard Koo wrote Japan's 1990- ?
"Great Recession "was a "balance
sheet recession."

1. A more complex unstable financial/credits system resulted in extreme optimism in
good times and panic in bad times.Think
Derivatives, securitization, credit default swaps managed by hedge funds.

2. Savings glut created
as
emerging countries lowered borrowing and increased trade surpluses
after
the 1997 Asian Debt Crisis
made their foreign dollar dominate debt unsustainable. They expanded trade and kept personal consumption below economic growth. Less consumption and borrowing plus a trade
surplus increased Dollar, Euro, and Yen
reserves. Like the Petro Dollars in the 1980's this excess savings
would be loaned for poor investments (housing).
Think
savings from China and Russia and other re.3. Aggregate demand stagnated
as trade surplus countries didn't spend. Germany's 2005 economic
renewal was saved and Japan's private sector saved much more after
their 1990's credit bubble exploded. Adding to the demand shortage
were companies who maintained profit by decreasing capital investment
spending despite historically low interest rates. Globalization and technology also
helped them maintain profit as wage increases were limited to most valuable employees.
State and local governments, especially those with underfunded pension systems, also cut
expenditures.
Think
Mercantilism.
4. Increased current account deficits by wealthy nations balanced world trade.
Higher demand for
foreign goods was made possible by massive central bank
supported low interest
loans. The FED's historic monetary expansion was made possible by
continued low inflation caused by expanded Flat World competition
and low oil prices. Innovative financing and lax financial regulation also fostered
expanded financial asset demand.
Think excess OPEC savings
financed the 1970's
Latin American Debt Crisis leading to Savings and Loan Crisis.5. Real Estate and Stock bubbles came as
expected from low long-term real interest rates. New home buyers borrowed surplus savings and
investors devoured growing unique debt securities created by an expanding
finance industry promising insured difficult to understand
almost guaranteed financial instruments.
Leverage rose dramatically. Fraud, near fraud
and data manipulation exploded as
mortgage servicers, banks, and the law firms broke the law to force
people out of their homes. SeeChain
of Title and
Brief History of Financial Bubbles.6. Poor Crisis Management by politicians as
their economic advisors believed market capitalism would prevent
serious recessions. The
Great Moderation solidified this view. Possibility of new financial
instrument contagion were not understood. When panic started,
political, intellectual and bureaucratic leaders resisted quick action in areas
that required cooperation. A
US depression was avoided by FED, Treasury and Congressional efforts
that were slowed by austerity. Iceland, Ireland, Greece, Spain and
Portugal experienced economic depression.
See
The Great Recession. See
Bubbles Credit and Their Consequences
to see FED analysis of trying to slow down a bubble.

New Normal # 4
History of U.S. Financial Bailouts and
Economic Recovery

Some believethe 15.5% poverty rate should
be lowered. After "...correcting the
2013 poverty rate for noncash food and housing
benefits, refundable tax
credits, and the upward bias in
the CPI-U ..."the rate drops from 14.5% to
4.8%.
War on Poverty-Was It LostOthers believe it should be raised as
it doesn't account for geographic and demographics differences.
See
Poverty Rates How Flawed Measure Drives Policy
Other Data 1
Data 2 Think many use true but not
necessarily appropriate data to foster their POLITICAL beliefs.
Example: With our obesity problem how could anyone have believed that many went to bed hungry during the
Great Recession. Calculation ignored food stamps and subsidized
school lunches.

Twenty-first century war expenditures helped profit recover after a
dot-com
bubble recession, then crash with The Great Recession and then
grow to
new heights. US Companies have competed very well in a flat world using
technology, outsourcing to Asia, Mexico...and by keeping wage
increases low.
Source Total compensation has done better although Obama Care gave companies an opportunity to again lower compensation.
SourceMore
Data 1
Data 2Think Rust Belt then NAFTA and soon TPP?
See
How Democratic Failed Workers 11 min
Short Term vs. Long Term Returns
52 min